Posted by on January 11, 2022 6:06 am
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Fed chairman Jerome Powell faces nomination hearing

Jerome Powell sits in the audience before being called to testify during a hearing on Capitol Hill in Washington, D.C. (AP Photo/Carolyn Kaster)

Fed chairman Jerome Powell faces nomination hearing

Zachary Halaschak January 11, 06:00 AMJanuary 11, 06:01 AM

Federal Reserve Chairman Jerome Powell is expected to get grilled about inflation and interest rates, among other topics, during his nomination hearing on Capitol Hill.

Powell, a Republican who has managed to garner bipartisan support and be renominated for a second term by President Joe Biden, will testify before the Senate Banking Committee on Tuesday. While he is expected to win reconfirmation to the role, his appearance gives lawmakers a prime opportunity to probe the country’s top monetary policy official.

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Desmond Lachman, a senior fellow at the American Enterprise Institute, told the Washington Examiner ahead of the hearing that a “really hot issue” lawmakers, particularly Republicans, will question Powell on is that of inflation.

Consumer prices increased 6.8% for the year ending in November, the fastest pace of inflation in decades. New inflation numbers will be released on Wednesday and are expected to show a 7% year-over-year pace last month.

WHAT TO EXPECT WHEN THE FEDERAL RESERVE HIKES INTEREST RATES

Lachman pointed out Powell had predicted much lower inflation than the current level. He said some Republicans on the committee might try to give Powell a tough time about the higher prices, which the central bank hopes to tamp down this year by raising interest rates several times.

Interest rates may be a political fissure point between Republicans and Democrats during Powell’s hearing. During their last meeting, Fed officials forecast interest rates would be hiked three times (although some estimates are for even more hikes).

“You can expect the Republicans to say, ‘Is that going to be enough to deal with inflation?’ And you can expect the Democrats to say, ‘We don’t want you to kill the recovery,’” Lachman said of the political fault line over interest rates.

Some in the GOP have been upfront with their qualms about Powell, a fellow Republican. A few months ago, Rep. Kevin Brady, the top Republican on the Ways and Means Committee, told the Washington Examiner the Fed “helped create” the inflationary problems the country is grappling with now.

“I’ve been very disappointed in Chair Powell this year,” the Texas lawmaker said. “He and the Fed dismissed both the labor shortage and then the real dynamics surrounding inflation for far too long — they’re just finally catching up with it.”

While some Democrats have been pleased with Powell’s independence during the Trump administration and for his strong support for the pursuit of full employment, others might grill him over the Fed’s banking regulatory policy. Sen. Elizabeth Warren of Massachusetts has been outspoken about her opposition to Powell’s nomination and is expected to press him on what she sees as the Fed’s too-lax regulation under his tenure.

Another hot-button topic that could be broached by both Republicans and Democrats is climate change and various social initiatives undertaken by the central bank. Some Democrats have said the Fed should prioritize climate change initiatives while some Republicans, such as the Banking Committee’s ranking member Pat Toomey, have said such initiatives exceed the bounds of the Fed’s mandate.

A Senate GOP aide told the Washington Examiner on Monday that GOP members of the Banking Committee are expected to press Powell on “woke mission creep,” which is the perception the Fed is deviating too far from its narrowly defined monetary and regulatory missions. The aide said Republican members are also interested in questions about inflation and the future of interest rates.

The Fed also generated headlines last year for controversial personal trades made by some top central bank officials. Disclosures revealed Robert Kaplan, former president of the Federal Reserve Bank of Dallas, made multiple stock trades in 2020 valued at more than $1 million. Additionally, Eric Rosengren, former president of the Federal Reserve Bank of Boston, bought and sold real estate investment trust shares.

Both Kaplan and Rosengren announced their retirements on the same day last week — Kaplan cited the controversy in stepping down, while Rosengren said he decided to retire in light of long-running kidney problems. Fed Vice Chairman Richard Clarida also announced his resignation on Monday, a day before Powell’s hearing.

Warren, who has previously called upon Securities and Exchange Commission to investigate the personal trades by Fed officials, sent a letter to Powell ahead of his hearing to accuse the central bank of dodging her previous requests for more information about the controversy, saying it “raises suspicions that the Fed may be failing to disclose the full scope of the scandal to the public.”

Other possible questions include cryptocurrency, the effects of rising interest rates on the stock market, and the state of the U.S. banking system.

Despite the deluge of questions Powell will face, he is likely to serve a second term.

“Nobody is really thinking that his confirmation is in danger,” Lachman said, noting that despite tough questions he will face at Tuesday’s hearing, he will likely get broad support when his nomination comes to a Senate vote.

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Brian Marks, executive director of the University of New Haven’s Entrepreneurship and Innovation Program, told the Washington Examiner that while many lawmakers will ask questions to glean input into Powell’s policy positions, some will inevitably use the podium for their own political gain.

“Unfortunately in our political environment, a fair number of questions are always about getting the soundbite for messaging, they’re not necessarily designed for effective policymaking, if you will,” Marks said.

© 2022 Washington Examiner

Originally appeared at Washington Examiner

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